Fletcher negotiates easier bank covenants but says it doesn't need them yet

Fletcher chief executive Ross Taylor. Photo / File

Fletcher Building said it has negotiated easier covenants through to the end of 2021 with its bankers in case they become necessary as the company navigates through the coronavirus crisis.

But if it does need the easier covenants, Fletcher has agreed not to pay a dividend until it returns to its normal covenants.

"We believe our current balance sheet sets us up well for the period ahead. That said, we are also taking steps beyond this to ensure we will be well placed to negotiate the uncertain trading environment ahead," chief executive Ross Taylor said in a statement.

The company currently has liquidity, or cash resources, of about $1.5 billion and a leverage ratio of about 0.8 times earnings compared with its normal target of one-to-two times. Debt at Dec. 31 was $650 million.

The new covenants reduce the total interest cover ratio to a minimum of 1.5 times earnings from 2 times normally, while the senior interest cover ratio has fallen to 2.25 times from 3 times normally.

Earnings dented

That's based on Fletcher's pre-covid expectation that earnings before interest and tax in the June quarter would be $231 million, but government measures to control the virus in New Zealand and Australia mean fourth-quarter earnings will be "materially" lower than that.

Nevertheless, Taylor said the company expects to be in compliance with the normal covenant levels at June this year.

"In considering its decision on the full-year 2020 dividend in August, the board will have regard to the impact of covid-19, the trading environment and outlook, as well as the terms of these amendment agreements," the company said.

Fletcher reported ebit of $219 million before significant items for the six months ended December, down from $248 million in the same six months a year earlier.

It forecast full-year ebit between $515 million and $565 million.

In April, Craigs Investment Partners' analysts were forecasting Fletcher's ebit for the year ending June would come in at about $460 million, below their pre-covid estimate of $542 million. Their base case for the year ending June 2021 was ebit of $438 million, but that it could fall as low as $258 million.

Fletcher shares are trading at $3.96, down 8 cents, or 2 per cent, from yesterday and are down 22.2 per cent year to date.

- BusinessDesk